Saturday, December 10, 2005

The Coming Bernanke Bust

The place not to be: those now-hot foreign stocks.Federal reserve chairman Alan Greenspan leaves the job on Jan. 31 with godlike status. His adoring fans call him the Maestro. Even the normally staid British got swept up in the Greenspan worship and gave him an honorary knighthood. Succeeding such an acclaimed figure would be tough for any mere mortal. For the next chairman, Ben S. Bernanke, it will be especially hard, since Bernanke lacks many of Greenspan's advantages.

Greenspan is a master politician, while Bernanke has a lot to learn about surviving and thriving in the Washington jungle. Greenspan stayed on for so long because he skillfully avoided fights with Congress and the White House. His public statements are masterpieces of obfuscation; he can't be pinned down. His ad hoc approach to monetary policy is indefinable, allowing him to foster the notion he is clairvoyant. He sagely refuses to name an inflation target, thus giving himself wide leeway when statistics jump around.

Bernanke, though certainly smart, has served only three years as a Fed governor and six months as President Bush's chief economist. The academic politics he faced as chairman of Princeton's economics department pales before the challenges he will encounter as Fed boss. What evidence has emerged from his brief time on the national scene is revealing. In a jarring November 2002 speech he suggested that the Fed could drop money out of helicopters to stop deflation. That comment has now created news coverage that no central banker wants.